AIG bonus controversy reaches boiling point in US

The chairman of besieged insurer AIG has asked employees who received part of
the $165m (£117m) in controversial bonus payments to repay at least half
back as the row surrounding AIG's actions reaches boiling point.

Protesters gather in hearing room before the testimony of AIG CEO Edward Liddy in Washington.

By James Quinn, Wall Street Correspondent

8:44PM GMT 18 Mar 2009

Ed Liddy, who took the helm at AIG in September as the government injected the first $85bn of a total of $173bn in taxpayer funds, revealed that some recipients had already returned 100pc of their bonuses since the furore surrounding their payment began at the weekend.

But Mr Liddy's olive-branch did not stop him from receiving an intense grilling at the hands of US politicians, as they questioned why the bonuses were paid in the first place and who in President Barack Obama's administration knew what and when.

The issue has galvanised public support against both AIG's bail-out and the Obama administration, with the New York Post yesterday running the headline "Not so fast you greedy bastards" across its front page. The subject remains the main item of discussion on major news networks across America.

Meanwhile politicians are looking either to clawback the payments through the company or to tax the recipients so severely on the bonuses that they will be almost worthless. Congressman Paul Kanjorski said "something is seriously out of whack" at AIG, while colleague Paul Hodes said the insurer's acronym stood for three things: "Arrogance. Incompetence. Greed."

Speaking during a subcommittee hearing of the House Financial Services Committee on the subject of the AIG bail-out, Representative Gary Ackerman said there was "a tidal wave of rage" against the payments, which went to members of AIG's Financial Products (FP) group which was in large part responsible for the company's near-downfall.

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Mr Liddy said he is desperately trying to prevent the uncontrolled collapse of the FP unit, explaining that there are still $1.6 trillion of toxic assets such as credit default swaps which need to be unwound.

Mr Liddy has consistently billed the payments as "retention bonuses" but that was called into question after it emerged 11 staff who received $1m or more had already left the business.

Questions were also asked about the role of Treasury Secretary Tim Geithner, who Mr Liddy said knew about that the bonuses would be paid two weeks ago, in contrast to earlier reports which suggested he only was informed a week ago.

As the proceedings continued, protesters continued to arrive outside the Congressional chamber, at one stage breaking into the hearing during an interlude in proceedings, holding banners which read "Fire Geithner".

President Obama, meanwhile, said he didn't not want to "quell anger," saying that "people are right to be angry".